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Euro Bounces All Eyes on Wall Street and Washington DC

Last updated 2/6/2009 6:07 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Top Stories

• Senate votes on stimulus plan today
• UK Manufacturing falls at worst rate since 1981
• All eyes on NFP later in the day
• Toyota loss greater than forecast
• Oil at $40/bbl
• Gold remains above $900 at $913/oz

Overnight Eco

• AUD AIG Construction Index 34.1 vs. 30.9 last
• JPY Leading Indicators bit better at 79.8% vs. 79.0% forecast
• CHF Unemployment Rate remains 2.9%
• GBP Manufacturing Production -2.2% vs. -1.3% forecast
• GBP PPI Input rises much sharper 1.5% vs. 0.5% forecast
• GBP PPI Output up 0.1% against -0.1% expected
• GBP Industrial Production worse at -1.7% vs. -1.2% eyed.
• EUR German Industrial Production -4.6% vs. -2.4%

Event Risk on Tap

• CAD Employment Change expected at -40.0K
• CAD Unemployment Rate expected at 6.8%
• USD Non-Farm Employment Change expected at -500K
• USD Unemployment Rate expected at 7.5%
• USD Average Hourly Earnings expected at 0.3%

Price Action

• USD/JPY takes out 9100 as the dollar rally continues
• AUD/USD runs all the way to 6600 on better data and return of risk appettie
• GBP/USD taken off the highs pre- MP and IP data abd remains below 1.4700 going into US Open
• EUR/USD runs back above 1.2800 but capped by reports of worse than forecats German GDP

EUR/USD managed to stage a mild rebound in Asian and early European session today, bouncing above the 1.2800 handle after selling off yesterday on disappointment at ECB’s inflexibility on interest rates. The euro rally, however was capped by news that German GDP would print worse than expected at -2.0% versus forecast of a -1.8% contraction. Nevertheless, the downside revision could hardly be considered a surprise to the market given the horrid series of economic data emanating from Germany all week long and the focus is likely to shift to the US NFP report due 13:30 GMT  

The EUR/.USD continues to be mired in a deep funk, with sentiment towards the currency resolutely bearish as traders view the monetary and fiscal officials in the region as utterly ineffective in dealing with the economic crisis at hand. Witness the reaction in EUR/GBP yesterday after BoE lowered rates while ECB remained stationary. The market actually punished the currency with a higher yield on the assumption that such policy will only aggravate the situation in the region.

Meanwhile in UK today Manufacturing and Industrial Production both contracted at far sharper rates than forecast with Manufacturing declining at -2.2% against expectations of -1.3% and Industrial Production shrinking at -1.7% rate vs. -1.2% eyed.  The rate of decline was the worst since 1981 underscoring the severity of the ongoing UK economic contraction. The news stands as a mild setback to the pound bulls who have been hoping for some signs of stability in the battered UK economy. Nevertheless,  given the uptick in PMI surveys this week, the Manufacturing and Industrial Production data may represent  a near term bottom in the sector and cable took the news in stride remaining above the 1.4600 handle ahead of the US Non-Farm payroll report due later in the day.

Turning to North America the focus will of course be on the NFP data due 13:300 GMT. However given the relatively bleak expectations for the release the post news reaction may be muted unless it falls widely off the 500K mark. Instead of Wall Street, currency traders may keep one eye on Washington where the debate on the Obama stimulus package continues in the Senate and may be voted upon later in the day. If the measure fails the greenback may sell off on the disappointment as yearning for some sort  of economic jumsp start remains the key concern of the FX market.

FX Upcoming

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.